EU budget complexities pose a public-relations challenge

The European Commission has a public relations problem, stemming from the complexity of the European Union’s budget.

What matters to the national finance ministries – and what is easiest for the public to understand – is the budget for actual money to be paid out, known in the jargon as payment appropriations.

But some of what will be paid out is predetermined by legal promises to pay that have been made in previous years. Regional aid for a roadbuilding project, for instance, will be committed in one year, but will not all be paid out until after the project is completed. A budget for commitments is how the EU tries to cope with multiannual programmes paid for with annual budgets, with the budget for commitment appropriations setting the total cost in the financial year of legal obligations entered into for operations carried out over more than one financial year. The Commission’s difficulty is that the Parliament and the Council of Ministers have in the past approved generous commitment budgets that were not matched by equally generous budgets for payments.

Revenue v spending

In theory, the European Union is not allowed to run a deficit budget. The governing treaties require that budget revenue must be equal to budget spending. Put another way, the EU, unlike the member states, cannot borrow to pay for its spending. But the overhang of commitments entered into but not paid out during the financial year (commitments outstanding) is effectively a disguised deficit. If those commitments were all turned into requests for payments at once, the annual payments budget would not be sufficient to meet the demands.

What makes matters worse is that the rhythm of the EU’s seven-year spending cycle loads most claims for payment towards the end of that cycle.

The Commission’s room for manoeuvre to patch up the budget is constrained by politics. An annual budget is agreed by the Parliament and the Council of Ministers – the latter deciding by qualified majority – and it can be amended during the course of the year (for instance, to approve more payments in a particular budget chapter, or to move money from one budget title to another) by the Council and Parliament. But moving money between budget headings requires re-opening the multiannual financial framework, and that needs the unanimous approval of the member states.